Business Efficiency

Business success depends on efficiency. This is where all activities in a business are done on a timely manner and with precision, this helps in cost cutting and good customer relationship.

Business leaders often think of “efficiency” and “productivity” as synonyms, two sides of the same coin.

When it comes to strategy, however, efficiency and productivity are very different. At a time when so many companies are starved for growth, senior leaders must bring a productivity mindset to their business and remove organizational obstacles to workforce productivity. This view differs substantially from the relentless focus on efficiency that has characterized management thinking for most of the last three decades, but it is absolutely essential if companies are going to spur innovation and reignite profitable growth.

The common definition of labor efficiency is: “the number of labor hours required to accomplish a given task, when compared with the standard in that industry or setting.” The typical way of assessing labor efficiency is to compare the number of hours actually required to produce a given product or service with those usually required.

Efficiency is about doing the same with less. Companies most often improve labor efficiency by finding ways to reduce the number of labor hours required to produce the same level of output. This translates into savings because the company spends less on wages and other labor-related costs. Efficiency, then, is about shrinking the denominator — inputs (headcount, labor hours) — in an effort to improve profitability.

If efficiency is no longer the secret to superior performance, what about productivity? Bain & Company recently completed a comprehensive study of workforce productivity and performance. We collaborated with the Economist Intelligence Unit to survey more than 300 senior executives from large companies worldwide. We complemented these survey findings with the results of two dozen in-depth organizational audits to identify the steps companies can take to unleash the productive power of their teams and accelerate profitable growth.

This research, combined with our experience as consultants working with senior leaders over the last three decades, highlights three fundamental tenets of a productivity mindset. Leadership must recognize:

Most employees want to be productive, but the organization too often gets in their way. Our research indicates that the average company loses more than 20% of its productive capacity — more than a day each week — to what we call “organizational drag,” the structures and processes that consume valuable time and prevent people from getting things done.

Leaders that take a productivity mindset seek to eliminate organizational drag at every turn. They simplify their organization’s structure and align their operating model with the true sources of value in their business. They fight bureaucracy and create ways of working that allow employees to focus their time on delivering for customers and shareholders.

The company has a few talented people who can have a disproportionate impact on strategy execution and performance, but these “difference makers” are too often put in roles that limit their effectiveness. Despite the countless millions that have been spent fighting “the war for talent,” our research suggests that relatively little has been devoted to safeguarding the spoils. Fifteen percent of most companies’ workforce are star players, employees with exceptional performance and the potential to have an outsize effect on strategy execution. Both “the best” companies and “the rest” have roughly the same amount of star talent.

But leaders with a productivity mindset make sure their scarce star talent is assigned to business-critical roles. In retail, for example, if superior merchandising is essential to competitive advantage, then leaders ensure that most (even all) critical merchandising roles are filled with star talent. This allows for more and better output from this function and better (and faster) execution of the company’s strategy.

We need to know the difference between efficiency and productivity. This will help us know that the ultimate goal of a business is to have good productivity this is where quality standards and cost are considered.

But perhaps our noble pursuit of efficiency is becoming something more like a frenzied — and self-destructive — obsession. The latest rage in tech is apps that call on-demand dogwalkers, personal assistants, concierges, butlers. Are these really the game-changing innovations that they’re heralded to be? Or are they something more like the rumblings of a new feudal age, in which a small number are masters, and the people formerly known as the middle class servants? And if they are, should we desire such an economy — not for moral reasons but for the sake of prosperity?

Here’s the problem.

Efficiency is a stagnating economy’s problem — not its solution. We live in what is already probably the most efficient economy in human history. One where you can drive your car down the super highway to the local mega warehouse store and buy giant jars of peanuts for peanuts.

Efficiency is being able to utilize resources at the lowest cost. And boy, are we superheroes of it. We’ve mastered it to a degree that’s profoundly unhealthy: we’ve beaten the costs out of our employees, people, managers…roles, departments, organizations, industries, sectors. And now we’re at a point where a lot of economic “growth” depends on tiny marginal gains in efficiency.

Today, economists are furrowing their brows and searching for causes of a productivity slowdown.

I think the answer’s hidden in plain sight. It’s damned hard to come up with life-changing breakthroughs when you’re trapped 25 hours a day on minimum wage being an on-demand insta-butler…dogwalker…chauffeur. And yet these services are in demand because the people who want them are also working 25 hours a day for the companies that make the smartphones, drone-deliver the toilet paper, and coordinate the on-demand cars.

The point isn’t to demonize the consumers or users of efficiency apps. It is to think a little more wisely about them, to note that Silicon Valley’s single-minded focus on them isn’t likely to deliver significant economic gains, nor should such apps be lionized as groundbreaking innovations that yield higher standards of living.

And so we’re trapped in an economy that has become all about efficiency — so much so that most of us now use the words “efficiency” and “productivity” interchangeably. Productivity is about “producing” not just actual, tangible things, but true, real, value-creating breakthroughs. But the most “efficient” company is just software running software. The most “efficient” economy is just 99% of people working as servants to the 1%.

Civilized societies should not want a class of neo-servants. Not merely for moral reasons — though there are moral reasons aplenty. But also, and perhaps and more subtly, for economic ones. A productive economy relies on breakthroughs which increase standards of living, and so create justifiably worthy inequality, higher wages, and middle classes that prosper instead of decline. Beyond productivity lies real social progress. But we cannot create real breakthroughs if we are too busy being servants.

So the challenge for us, as leaders, investors, inventors, dreamers, and doers, is this: not merely to settle for apps which make our lives a little easier. But to create the earth-shaking breakthroughs which make lives truly better — and give others the chance to do so as well.